Aircraft Lessors Grow Through M&A, Partnerships

Aircraft lessors continue to consolidate and form new partnerships to improve scale and meet rising demand for air traffic, according to Fitch Ratings in its latest North American Financial Institutions Chart of the Month.

In April 2017, Avolon acquired CIT Group Inc.'s commercial aircraft leasing platform. In August 2017, Dubai Aerospace Enterprise (DAE) Ltd. acquired AWAS from funds managed by Terra Firma Capital Partners and the Canadian Pension Plan Investment Board. Fitch views scale from these M&A transactions positively because it provides strategic benefits, such as increased purchasing/negotiating power and more channels to re-lease planes.

At the same time, other lessors have grown through new partnerships. In August 2017, Air Lease Corporation entered into a new agreement with Napier Park Global Capital (US) LP (Napier Park) to participate in a joint venture, Blackbird Capital II, LLC (Blackbird II). The original partnership, Blackbird Capital I, LLC, was established in 2014, and both entities will be used to manage Air Lease's portfolio concentrations and grow its managed fleet.

In June 2017, GECAS, GE Capital's aircraft leasing business, announced an agreement with Caisse de depot et placement du Quebec to create a $2 billion financing platform for global aircraft. GECAS will make some investments in the new platform named Einn Volant Aircraft Leasing and will source and service new transactions.

Industry dynamics, during this period of consolidation, remain favorable. Revenue passenger kilometers have grown 7.7% year-to-date through July 2017; the strongest level since 2011. Funding markets remain attractive to lessors, while oil prices, which remain low, have generally boosted the credit profiles of aircraft lessors' customers.

"Low oil prices generally benefit aircraft lessors by boosting airlines' profitability as well as keeping utilization rates high and repossession activity low," said Senior Director Sean Pattap. "Older and less fuel-efficient aircraft that may have been parted out have instead been profitably kept in use."